Kraft Foods UK Ltd v Hastie
Under the 2006 Employment Equality (Age) Regulations, employers can justify both direct and indirect age discrimination if it is a proportionate means of achieving a legitimate aim. In Kraft Foods UK Ltd v Hastie, the Employment Appeal Tribunal said that a cap on a contractual redundancy scheme could be justified if the aim was to stop employees from receiving a windfall.
Basic facts
Richard Hastie started working for Kraft Foods on 14 April 1969 in the coffee processing department. He worked for almost 40 years for the company before taking voluntary redundancy in December 2008.
Under the scheme, employees were entitled to three and a half weeks’ pay for each year of service, which would have given him just over £90,000. However, the scheme was subject to a cap, so that the total sum awarded to an employee could not exceed the amount they would have earned had they stayed on at work until their normal retiring age.
As Mr Hastie was about two and a quarter years from his retiring age of 65, he could not have earned £90,000 by that time and his voluntary redundancy award was cut to just over £76,000. He claimed age discrimination.
Tribunal decision
Kraft accepted that the cap was a provision, criterion or practice that disproportionately applied to employees in the two or three years before their retiring age, but argued that it was justified to stop employees from enjoying a “windfall” whereby they recovered more from the scheme than if they had remained at work.
The tribunal disagreed. It said that the cap disproportionately applied to employees coming up to retirement age and was therefore an act of unlawful age discrimination under the regulations.
EAT decision
The EAT, however, disagreed. It said that the whole point of a redundancy payment was to compensate employees “for the loss of [their] expectation of continued employment”.
“On the basis of those premises, it would go beyond the object of the scheme – and thus be a “windfall” – for an employee to receive a sum under it in excess of what he would have been entitled to receive had he continued to age 65. To take an extreme example by way of illustration, an employee on the same earnings as the claimant, and with his length of service, who was made redundant at age 64 and 11 months would receive £90,000 by way of compensation for the loss of the chance to earn some £3,000 in the remaining month of his employment.”
That being so, the EAT said it was perfectly legitimate for a redundancy scheme to incorporate a provision designed to prevent “excess compensation” and that the cap in this case was a proportionate means of achieving that aim. “Indeed, it does so with precision, and arguably more accurately than by the application of a taper, which is the other means commonly employed.”
It went on to say that if the dismissal had been “positively unfair”, the employee would, of course, be entitled to a compensatory award based on an assessment of their actual loss. “But the fact that an assessment is carried out in those, different, circumstances does not undermine the proposition that the underlying purpose of a redundancy payment is also compensatory.”
The EAT therefore allowed the appeal.